Valeant and Pershing Square said the complaint was intended to prevent them from calling a special meeting of Allergan shareholders to vote on their board nominees.

“This is a shameless attempt by Allergan to delay the shareholders’ fundamental right to call a special meeting,” Ackman said in a statement. “Allergan’s determination to waste money on a baseless lawsuit against its largest shareholder further demonstrates why this board of directors should be removed.”

Without a shareholder meeting, Pershing Square and Valeant may not have the support they need to remove Allergan’s “poison pill” measure or to ensure the success of a tender offer.

The lawsuit marks the latest twist in an increasingly hostile battle between the two drugmakers and one of the world’s most prominent activist investors. Allergan has been fighting the takeover bid since it was announced on April 22.

From the beginning, outside lawyers said the structure of the Ackman partnership with Valeant was novel but not illegal. Now some experts say the suit could allow Allergan to seek fresh evidence to press its case and make life tougher for the $15 billion hedge fund.

The timing for Ackman’s Pershing Square is also inopportune as it works to list one of its funds on an exchange in Europe.

“This lawsuit brings a set of plausible but difficult complaints that Ackman’s lawyers will likely not be able to get dismissed right away,” said Erik Gordon, a professor of law and business at the University of Michigan.

“Defending against this suit is going to cost money and time and be unpleasant for Ackman,” he said. “It may give Allergan discovery rights to dig in and see if there is more evidence.”

The value of Pershing Square’s 9.7 percent stake in Allergan, built up between February and April, jumped $1.2 billion once the takeover bid became public. Allergan said the hedge fund improperly enriched itself at the expense of shareholders.

Insider trading cases typically turn on whether a breach of duty or trust to the source of information has occurred. In this case, the insider trading allegations focus on Securities and Exchange Commission, or SEC, regulations surrounding the dissemination of information related to tender offers.

“There is a technical SEC rule, Rule 14e-3, that prohibits the use of material tender offer information, unless you are the offering person,” Alan Palmiter, a law professor at Wake Forest University, in Winston-Salem, North Carolina said.

“There could be a plausible argument that Ackman may have violated this rule even if he bought Allergan shares with Valeant’s permission, because the rule does not require a breach of a duty of trust or confidence.”

DELAY IN SHAREHOLDER MEETING

Allergan asked the U.S. District Court for the Central District of California to rescind Pershing Square’s purchase of the Allergan shares, arguing they were illegally acquired.

The lawsuit said heavily indebted Valeant lacked the resources to buy Allergan, so it sought financing from Ackman and Pershing Square. By the time they reached a financing agreement, Valeant had already taken concrete steps toward a tender offer for Allergan, it added.

For Ackman, who invests for institutional investors including state pension funds as well as wealthy individuals, the lawsuit comes at a critical time as he presses forward with an activist campaign against Herbalife (HLF.N) and works to attract investors to the new Pershing Square fund planned for Europe.

Privately investors have said they are sticking with Ackman for now, but industry analysts said this lawsuit could eventually make investments with his fund tougher.

“Any credible allegations of insider trading is not something you want when you are mounting a road show,” Gordon said. “In this case Bill Ackman is the road show and he’s put on quite a show already.”